THE ROLE OF THE

AUSTRALIAN SECURITIES EXCHANGE 5

WHAT DOES THE AUSTRALIAN Learn about...
SECURITIES EXCHANGE (ASX) DO?
THE SIZE OF THE AUSTRALIAN
SHAREMARKET
WHAT ASX DOES

KEY DEFINITION
SECURITIES MARKET:
The market in which securities are
issued and traded. Securities is
another word for shares.

DID YOU KNOW?

Bourse is the French word for
stock exchange. The name came
from the Dutch noble family Van
Bourse who allowed tulips to be
traded at their offices in the 17th
century. Tulip bulbs were traded in
ASX is one of the worlds top 10 listed exchange groups. much the same way that shares are
traded today.
ASX ACTIVITIES INCLUDE:
1. Reviewing applications by companies to be listed on ASX. This includes reviewing
the companys history and finances. Each company must agree to obey the ASX
Listing Rules.
2. Supervising companies after they are approved to make sure they obey the rules.
3. Making the shares in listed companies available for trading on a network of
computers
in an electronic market.
4. Reviewing applications by stockbrokers to be ASX Market Participants.
5. Giving approved stockbrokers access to the sharemarket so they can buy and sell
shares for themselves and customers.
6. ASX also operates a system for keeping a record of ownership of shares.

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5 THE ROLE OF THE AUSTRALIAN SECURITIES EXCHANGE

ASX PERFORMS MANY ROLES

Within your own school, the principal and teachers run the school. They set rules Do your homework
and see they are adhered to, develop courses, organise school activities, teach and
report on student progress, amongst a host of other things. Now, lets look at what
ASX does to ensure the sharemarket runs smoothly and efficiently. Every day in the news there is
information about how overseas
1. ASX ALLOWS COMPANIES TO RAISE FUNDS (CAPITAL) sharemarkets have performed.
ASX is Australias largest stock exchange allowing companies and trusts to issue In Australia we use the S&P/ASX
securities (such as shares) to the general public in order to raise funds (to set up indices and to a lesser extent, the
a new business or expand an existing business). Once listed on ASX, investors can All Ordinaries Index as a barometer
trade their securities. to check the overall direction
of the Australian sharemarket.
2. ASX PROVIDES A MARKET FOR SECURITIES TO BE TRADED Check the business section of the
The sharemarket is made up of buyers and sellers wishing to exchange securities. newspaper to find out the names
ASX provides an electronic trading system. Buyers and sellers do not physically of the indicators used in New York,
meet to buy and sell shares as their orders are entered electronically. Prior to the London, Hong Kong and Tokyo.
introduction of the computerised trading system in 1987, ASX had a physical
location known as the trading floor and before that there were separate exchanges
with their own trading floors in capital cities around Australia.

3. ASX PROVIDES A SYSTEM TO TRANSFER OWNERSHIP QUICK QUIZ

OF SECURITIES After completing this lesson, test
ASX also provides a computerised system to transfer legal ownership of the your knowledge by doing this quick
securities between buyers and sellers as well as the transfer of money for quiz. State whether the following
these securities. statements are true or false.
1. You can visit ASX and see the
4. ASX SETS LISTING RULES FOR COMPANIES TO FOLLOW trading floor in operation today.
An example of a rule affecting listed companies is the rule of continuous disclosure 2. Shares are traded through a
where listed companies must inform ASX of any information that may affect their network of computers.
share price. For example, if a listed company is going to merge with another company,
release a financial report, announce a technological breakthrough or change in 3. Once a company or trust
company management, ASX must be informed so it can immediately release this becomes listed, investors can
important information to the market. buy and sell securities in that
company.
Another important area covered by the listing rules is how a company can issue
shares and who they can be issued to. 4. Once a listed company is
established, what it does is its
There are over 2,000 companies listed on ASX. This seems like a large number but own business and there is no
there are over 1.5 million companies registered in Australia from big companies to obligation to report any news
very small companies. about the company to ASX.
5. If the share price of a company
increases dramatically without
any justifiable explanation, it is
up to ASIC to investigate.

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5 THE ROLE OF THE AUSTRALIAN SECURITIES EXCHANGE

ACTIVITY ONE
The table below lists three company announcements released on the ASX website www.asx.com.au. Read the announcements
and then answer the following questions.

COMPANY ANNOUNCEMENT

1. CSL Limited (CSL) In October 2014 CSL announced it had agreed to acquire the global influenza vaccine business
owned by the company Novartis.

2. Clinuvel Pharmaceuticals In October 2014 biotechnology company Clinuval announced to the market that the European
(CUV)) medicines agencys committee for medical products for human use had voted in favour of
marketing authorisation of Clinuvels drug Scenesse.

3. Vocation (VET) In October 2014, Vocation announced to the market that it surrendered $19.6 million in
Government funding due to performance issues relating to some of its Victorian businesses.

1. Why do you think CSL needed to let the market know about buying another company?

2. How would approval by European authorities affect the business operated by Clinuvel?

3. i) Do you think Vocations announcement was price sensitive?

ii) Do you think the share price would have gone up or down?

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ASX SETS MARKET RULES

ASX also sets the Market Rules to regulate how trading may take place on ASX.
Among other areas, the rules cover
WEBSITE TO VISIT
Go to www.asx.com.au by
How buyers and seller of securities must be treated. going to the Prices & Research >
For example, if you wish to buy or sell shares you must use a broking firm to Announcements then complete
complete the transaction. The broking firm must enter orders into the market the quick quiz below.
as soon as they are received. Why do you think this would be important?
How brokers must behave so that the integrity (honesty) of the market place QUICK QUIZ
is maintained.
Give an example of one company
announcement and explain why
ASIC SUPERVISION AND SURVEILLANCE
you think it was important that the
The price of securities and the quantity bought and sold (volume) changes announcement was disclosed to
continually. The Australian Securities and Investments Commission (ASIC) monitors ASX and therefore made publicly
the market to detect any trading that falls outside the normal pattern. available to all investors.
This is referred to as surveillance. A computer system monitors trading information
and picks up any unusual price or volume movements and puts out what is called
an alert. For example, if a share jumps up by a lot more than it normally does or
if shares are traded a lot more than usual, the system will generate an alert. An
analyst will then assess the market conditions that caused the price or volume
movements and will investigate further if necessary.

ALERTS
Most alerts turn out to be explainable, as a company may have made an important
announcement or there may have been a favourable newspaper report about the
company. However, there may be the possibility of market abuse, in which case
the matter is investigated.
The main concern is that someone knew some important information that
everyone else didnt know when they were trading.

INSIDER TRADING
People who know confidential information (not available to the public) that might
affect the share price are not supposed to buy or sell shares until the market has
been informed. People who do this are breaking the law and might be charged
with insider trading.

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5 THE ROLE OF THE AUSTRALIAN SECURITIES EXCHANGE

ACTIVITY TWO
Read all the information in this lesson to complete this crossword puzzle.
Use the clues below to help you fill in the blanks.
1 2 3

4 5

6 7

10

11

12

ACROSS
1. What is the abbreviation for the Australian Securities Exchange?
2. What do companies raise when they issue shares?
4. An is generated if a share price moves unusually.
7. Trading no longer takes place on the trading floor. It takes place via a computer?
8. What is the name of the activity for monitoring the market to detect unusual trading?
10. Another term for the stock market is the ?
11. What is the word for a place where shares are bought and sold?
12. All Ordinaries ?
13. The Vocation announcement would cause its share price to go ....
14. The ASX code for listed company Cochlear

DOWN
1. Which organisation has responsibility for monitoring unusual trading activity?
3. If a company has something important to tell the market it makes an ?
5. A company with shares traded on the share market is called a company?
6. If a person who buys or sells shares has confidential information they might be charged with trading.
9. Fill in the missing word: The York Stock Exchange

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